How to treat crypto sales

[nbizic56]

If I have an existing amount of a crypto asset like Bitcoin (say for example $5k) and I buy and additional $1k in Bitcoin, then my holding is 6k in Bitcoin.  A year later, I sell 1k in Bitcoin.  How do I look at the cost to acquire the bitcoin, is it First in First Out, Last in First Out, or an average cost of the 1/6th of the Bitcoin as my cost basis?  Thank you.

[zclar]

Hi @nbizic56 and thanks for your question!

For most accounts, the default accounting method is the FIFO (First-In First-Out) rule. This would mean, the first Bitcoin purchased would be the the first Bitcoin sold.

The IRS allows you to use a specific identification method like LIFO (Last-In First-Out) or HIFO (Highest-In First-Out) if you have records containing the following information:

• The date and time each unit was acquired.
• Your basis and the fair market value of each unit at the time it was acquired.
• The date and time each unit was sold or disposed of.
• The fair market value of each unit when sold or disposed of.

If you do not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency you purchased or acquired; that is, on a first in, first out (FIFO) basis.

See Q39, Q40, & Q41 in this IRS link: Frequently Asked Questions on Virtual Currency Transactions 

I hope this helps!

[nbizic56]

Perfect, thank you